Retiring to a place in the sun is a common dream for people living in the UK – British and not.
A significant number of clients focus their financial planning on being able to do just that; while others may just want to return to their country of origin after spending years, if not decades, working in the UK.
But they both likely have one thing in common: they have probably contributed to one or several UK pensions throughout their professional lives in the United Kingdom.
If they do retire to sunny Spain, Portugal, France, or Italy; what options are available to them to tap into their hard-earned savings?
To understand the best ways retirees moving to EU member states can access their UK pensions, International Adviser spoke with The Fry Group Belgium and Aisa International.
Worry about tax
Ed Read Cutting, director of The Fry Group Belgium, said: “The main point when transferring a UK pension is not to just look at ‘the EU’; but, more importantly, to consider the specific country being moved to.
“Transferring a UK pension has many angles, but the main one is taxation of the pension, whether it be a Qrops or a Sipp. Double taxation is bi-lateral, from country to country, so these double taxation treaty rules need to be examined thoroughly to see which regime is best suited to the tax system of the country in which you’re resident.
“And it can get very complicated – not least because some countries in Europe don’t have their own relatable private pension systems, and a Qrops is effectively a private pension.
“Obviously, other factors such as control, currency and cost also need to be considered but tax remains the main element to be concerned with, and one which is vital to be sure about.
“And tax, of course, breaks down into various parts too: income tax, tax on the pension commencement lump sum, estate tax and so on.
“France, like Belgium, doesn’t really recognise trusts – although there have been some recent changes – so a ‘contract’-based Qrops, if it is the appropriate vehicle, makes more sense.
“As always, there’s no one size fits all and it’s important to consider each and every transfer on its own circumstances. An adviser with a global reach is a useful ally and we’ve certainly made a number of transfer recommendations to those moving to France over the years.”
Read Cutting said that, for people finding themselves in this situation, both Trireme and Sovereign provide viable solutions with well costed contract-based schemes with good admin back up, as well as technical assistance.
A shrinking market?
Chris Lean, director at Aisa International, said that things can get very tricky because financial advice on UK pensions can only be provided by UK-based advisers. The only way a non-UK planner could step in would be by transferring that pension, but that is often not in the client’s best interests.
“I think this is going to be the biggest concern with non-UK advisers now telling UK pension holders that UK advisers cannot advise on UK products. And, we all know, that for defined benefit (DB) schemes and safeguarded benefits over £30,000 ($41,690, €34,514) that UK advisers have to be involved.”
But it does not stop there, an ongoing Sipp introducer legal case in the UK may complicate things even further, Lean added.
“The Carey case may affect the UK pensions market offshore. Essentially, it matters not where the adviser is regulated outside of the UK, the non-UK adviser could well be treated as an introducer only as far as the UK regulator is concerned.
“Since 2015, with the introduction of pension freedoms, a lot of the well-touted reasons for transferring to a Qrops vanished. Further, the overseas transfer charge (OTC) in 2017 restricted this market even further.”
Get advice first and foremost
To add to the restrictions that non-UK financial advisers face when dealing with UK pensions, every EU member state has different regimes when it comes to tax or the treatment of private pensions.
That is why Lean emphasises the need to receive tax advice to avoid any unnecessary bills both in the UK and abroad.
He said: “Given the way differing jurisdictions treat offshore pensions, it would always be sensible to take tax advice before considering a Qrops. Often, a double tax agreement (DTA) will nullify any need to consider such a transfer. However, DTAs should always be read, and lifetime allowance planning is still valid in a minority of cases.
“As for France, it does not recognise trusts and we have yet to see whether they will be accepted as bona fide pensions. No one in France should transfer to a Qrops without taking tax advice first.
“There may be an argument to make use of the DTA between the UK and France to extract the fund in full, less tax, to place into an insurance vie. Again, tax advice should be taken. And, while assurance vie products do have some inheritance tax (IHT) advantages, for UK-domiciled pension holders, the effect of bringing large sums out of a UK pension into the estate may outweigh any initial possible tax advantage if HMRC comes calling for IHT.”